Diane Buswell is preparing the 2020 budget for one of
Current Designs’ rotomolded kayaks. Extensive
meetings with members of the sales department and executive team
have resulted in the following unit sales projections for
2020.
Quarter 1 | 2,800 | kayaks | |
Quarter 2 | 3,600 | kayaks | |
Quarter 3 | 2,400 | kayaks | |
Quarter 4 | 2,400 | kayaks |
Current Designs’ policy is to have finished goods ending inventory
in a quarter equal to 25% of the next quarter’s anticipated sales.
Preliminary sales projections for 2021 are 1,100 units for the
first quarter and 3,600 units for the second quarter. Ending
inventory of finished goods at December 31, 2019, will be 700
rotomolded kayaks.
Production of each kayak requires 56 pounds of polyethylene powder
and a finishing kit (rope, seat, hardware, etc.). Company policy is
that the ending inventory of polyethylene powder should be 20% of
the amount needed for production in the next quarter. Assume that
the ending inventory of polyethylene powder on December 31, 2019,
is 20,000 pounds. The finishing kits can be assembled as they are
needed. As a result, Current Designs does not maintain a
significant inventory of the finishing kits.
The polyethylene powder used in these kayaks costs $1.50 per pound,
and the finishing kits cost $150 each. Production of a single kayak
requires 2 hours of time by more experienced, type I employees and
3 hours of finishing time by type II employees. The type I
employees are paid $20 per hour, and the type II employees are paid
$17 per hour.
Selling and administrative expenses for this line are expected to
be $43 per unit sold plus $7,100 per quarter. Manufacturing
overhead is assigned at 160% of labor costs.
Prepare the production budget for this product line by quarter and in total for 2020.
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